RegulationCorporate GovernanceFSA plans formal probe of HFMs

FSA plans formal probe of HFMs

FSA plans a formal assessment of hedge fund managers after recent visits revealed general complacancy over market abuse

After recent visits of a cross section of hedge fund managers (HFMs), FSA
plans to expand its visits over the coming months and make formal assessments of
HFM controls to prevent market abuse and insider trading. This will be done
against standards such as staff training, dissemination of information,
maintaining data on transactions and recording phone calls.

‘We are disappointed by some of what we saw,’ the latest
FSA
Market Watch
report noted. ‘We will be following up with the firms visited
and are also launching a program of visits to a wider cross section of HFMs over
the coming months to formally assess their market abuse systems and controls. In
the meantime we are setting out our views on the sorts of measures which HFMs
should be taking, along with examples of good practice which we found during our
first set of visits.’

FSA said it was ‘particularly disappointed’ at the level and standard of
training at some of the HFMs it visited and urged senior management of HFMs to
‘recognise their responsibilities’ to ensure their staff was adequately trained
and support compliance with the market abuse regime through culture and controls
alike ‘in contrast with the impression given by some HFMs during our visits’.

FSA also had concern about the number of leaks across the marketplace about
potentially price sensitive events and stressed senior management at HFMs had ‘a
part to play in the efforts to reduce the number of leaks leading to informed
trading’. In addition, FSA called for in-built controls which lessened the need
for human intervention and independent monitoring of market abuse controls and
procedures.

Further reading:

FSA mulls derivative disclosure

Minor changes proposed to Combined Code

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